Japan firms’ price expectations slide, keep BOJ under pressure

TOKYO (Reuters) – Japanese companies’ inflation expectations fell slightly in June from three months ago, the Bank of Japan’s tankan survey showed, adding to growing doubts over its argument that aggressive money printing will speed price growth to its 2 percent goal.

The data on inflation expectations came after Friday’s tankan sentiment survey showed business confidence was subdued in the second quarter, heightening pressure on the BOJ to roll out yet more stimulus to ease the pain from a strong yen.

Companies expect consumer prices to rise an average 0.7 percent a year from now, down 0.1 percentage point from three months ago and some way off the BOJ’s 2 percent target, the tankan survey on price expectations showed on Monday.

Firms polled said they expect consumer prices to rise an annual 1.1 percent three years from now, unchanged from the projection in March.

In five years’ time, companies expect consumer prices to rise an annual 1.1 percent, lower than a 1.2 percent increase projected in the previous survey.

The survey underscores the challenges the BOJ faces in trying to accelerate inflation to its 2 percent target by flooding the economy with cash, on hope that doing so would prompt companies and households to spend now rather than later on expectations that prices will rise in the future.

The BOJ added negative interest rates in February to its massive stimulus programme, under which it prints 80 trillion yen ($780.9 billion) a year to buy government bonds, but inflation has failed to make headway to its target.

The core consumer price index, which strips away the effect of volatile fresh food costs, fell 0.4 percent in May from a year earlier, marking the biggest drop since the BOJ deployed its huge asset-buying programme in 2013.